'India needs to be self reliant for economic growth'

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Martin Wolf, Chief Economics Commentator for The Financial Times believes that given the economic slowdown & other challenges all over the world including US, Europe and China, India should lean to be a self reliant market. With a grip on good governance, infrastructure, education and qualitative labour market India can garner a 9% economic growth.

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying videos.

Q: Before I talk to you about the world, the recovery path seen, the US embarks and your thoughts on the Indian economy, I was hoping to get your comments on a matter, which has been in the headlines of late. The Supreme Court in India has cancelled 122 telecom licenses. This involves foreign investors as well. How do you think this is going to affect brand India and India's image as a foreign investment destination? 

A: I do not regard myself anyway expert on this, but it seems to me cuts two ways. Either, it is going to increase uncertainty in the sense that people are going to lose money since it has all been a very complicated and difficult process. This is bound to disturb investors, as they do not expect to lose money. On the other hand, people might reasonably conclude that India is cleaning itself up. It is set to become more transparent in the future. These sorts of things will aim to be better and that is actually quite attractive to foreign investors. So, right now it's too early to tell. It depends on the next stage of regulation and the granting of licenses that will unfold in this country.

Q: Would this then go down as another example of the fact that regulatory risk especially in emerging markets like India are perhaps increasing? 

A: Actually regulatory risk is increasing everywhere in the world. If you ask western businesses particularly in the financial sector about regulatory risk, they will talk to you about it for hours. For example in the financial segment it is license for banking. The truth is that governments are involved in certain industries where you are selling or providing spectrum. It's inevitable as regulators, if there are regulators, there are regulatory risks. Many regulators in some industries feel they have been allowing too much to go on. That is clearly the case in finance. I do not think it is unique to developing and emerging countries, but it is something that governments have to watch out. They need to make their regulatory structures as transparent, as clear, as law-governed, as market friendly as possible. However, at the same time any sensible person understands that governments have a duty to regulate as per public interest.  

Q: I want to hear your views on the Indian economy. The Indian economy has slowed down considerably from the earlier estimates of 8% plus. We are now talking about just a little over 7%, perhaps around that 7.2-7.3%. You have spent a couple of days here in India. What is your own sense about the economy and the path to fiscal consolidation that is imperative? 

A:. Recently there has been quite a tight monetary policy. In this sort of environment of uncertainty, I am not surprised by the slowdown. But I have to say that most countries in the world would kill for a 7% growth rate. Hence, it is still a remarkable achievement. It is clear that the world environment is going to be very difficult. I think for the next few years, India has to rely on itself significantly. That means Indian policy has to be as good as possible. One of the things that has to be done, it's evident to the government too, is to consolidate the public finances. In the short run, there could be a drag on growth. In the long-run, I think it will promote growth along with all the other things and reforms that everybody talks about. At the moment, I do not believe that without further reforms India can grow much above 7-8% anyway, so the 9% may actually be out of reach. 

Q: You are of the opinion that the problems in India are largely of its own making. The slowdown that we are currently seeing has more to do with its own domestic challenges, lack of decision making perhaps as opposed to what is happening outside? 

A: It is understandably both. But I haven't followed this, that closely. Of all the major emerging countries, India is probably the most immune. That does not mean it is immune, but the most immune to circumstances in world markets. Thus even if there are external shocks, it ought to be possible for this relatively balanced economy to develop on the basis of that internal demand and supply above all. So, I do think that ultimately over here much depends on the way policy works. Real interest rates have been relatively high. Monetary policy is rather tight. Fiscal policy is a problem, leaving aside structural policy changes - these are all Indian challenges. So, of course what happens in the world does affect India. However, I believe that it does have the tools to respond significantly and efficiently if it wants to.